Two Byrd Rule problems with the AI moratorium
Note: this commentary was drafted on June 26, 2025, as a memo not intended for publication; we’ve elected to publish it in case the analysis laid out here is useful to policymakers or commentators following ongoing legislative developments regarding the proposed federal moratorium on state AI regulation. The issues noted here are relevant to the latest version of the bill as of 2:50 p.m. ET on June 30, 2025.
Two Byrd Rule issues have emerged, both of which should be fixed. It appears that the Parliamentarian has not ruled on either.
Effects on existing BEAD funding
The Parliamentarian may have already identified the first Byrd Rule issue: the plain text of the AI Moratorium would affect all $42.45 Billion in BEAD funding, not just the newly allocated $500 Million. It is not 100% certain that a court would read the statute this way, but it is the most likely outcome. We analyzed this problem in a recently published commentary. This issue could be fixed via an amendment.
Private enforcement of the moratorium
In that same article, we flagged a second issue that also presents a Byrd Rule issue: the AI Moratorium seemingly creates private enforcement rights in private parties. That’s a problem under the Byrd Rule, because the AI Moratorium must be a “necessary term or condition” of an outlay. A private enforcement right cannot be characterized as a necessary term or condition of an outlay that does not concern those third parties. This can be fixed by clarifying that the only enforcement mechanism is withdrawal or denial of the new BEAD funding.
The text at issue – private enforcement of the moratorium
The plain text of the moratorium, and applicable legal precedents, likely empower private parties to enforce the moratorium in court. Stripping the provision down to its essentials, subsection (q) states that “no eligible entity or political subdivision thereof . . . may enforce . . . any law or regulation . . . limiting, restricting or otherwise regulating artificial intelligence models, [etc.].” That sounds like prohibition. It doesn’t mention the Department of Commerce. Nor does it leave it to the Secretary’s discretion whether that prohibition applies. If states satisfy the criteria, they likely are prohibited from enforcing AI laws.
Nothing in the proposed moratorium or in 47 U.S.C. § 1702 generally provides that the only remedy for a violation of the moratorium is deobligation of obligated funds by the Assistant Secretary of Commerce for Communications and Information. And when comparable laws—e.g. the Airline Deregulation Act, 49 U.S.C. § 41713—have used similar language to expressly preempt state AI laws, courts have interpreted this as authorizing private parties to sue for an injunction preventing enforcement of preempted state laws. See, for example, Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992).
What would happen – private lawsuits to enforce the moratorium
Private parties could vindicate this right in one of two ways. First, if a private party (e.g. an AI company) fears that a state will imminently sue it for violating that state’s AI law, the private party could seek a declaratory judgment in federal court. Second, if the state actually sues the private party, that party could raise the moratorium as a defense to that lawsuit. If the private party is based in the same state, that defense would be heard in state court, and could result in dismissal of the state’s claims; if the party is from out-of-state, the claim would be removed to federal court, where a judge could also throw out the state’s claims.
Why it’s a Byrd Rule problem – private rights are not “terms or conditions”
The AI Moratorium must be a “necessary term or condition” of an outlay. In this case, promising not to enforce AI laws is a valid “term or condition” of the grant. Passively opening oneself up to lawsuits and defenses by private parties is not. Those lawsuits occur far after states take the money, are outside their control, and involve the actions of individuals who are not parties to the grant agreement. They also have significant effects unrelated to spending: binding the actions of states and invalidating laws in ways completely separate from the underlying transaction between the Department of Commerce and the states. It is perfectly compatible with the definition of “terms and conditions” for the Department of Commerce to deobligate funds if the terms of its grant are violated. It is an entirely different thing to create a defense or cause of action for third parties and to allow those parties to interfere with the enforcement power of states. The creation of rights for a third party, uninvolved in the delivery or receipt of an outlay cannot be considered a necessary term or condition.